List price, discount and profit margin: pricing your quotes correctly
For dealers and distributors working from price lists: a simple way to get from list price to selling price, and from cost discount to profit margin.
Most firms selling mechanical, electrical or building products work from the manufacturer's list price. The selling price is the list price minus the discount you give, and your cost is the list price minus the discount your distributor gives you. When those two discounts get mixed up, your profit becomes invisible.
Three numbers, two discounts
- List price: the price published by the manufacturer.
- Sales discount: the discount you give the client. Selling price = list × (1 − sales discount).
- Cost discount: the discount you receive. Cost = list × (1 − cost discount).
Calculate profit margin correctly
Example: list price €1,000, cost discount 40%, sales discount 25%. Your cost is €600 and the selling price is €750. Profit is €150, which is a 20% margin on the selling price. Saying "there is a 15-point gap" is misleading; what really matters is the margin on the selling price.
What to show on the quote
Some clients want to see the list price and the discount, because it proves the discount is real. Others only need the net price. Whichever you choose, cost and profit should never appear on a client-facing document.
Set discounts per brand
If you get a different discount from each brand, define them once. When you add a product to a quote, the right discount should come in automatically. That removes the risk of quoting two different prices for the same product on two quotes.
In short
- Treat the list price as the single source of truth.
- Keep sales and cost discounts separate.
- Calculate margin on the selling price.
- Never put cost or profit on a client document.